Industrial Production Falls More Sharply Than Expected

After a strong August, industrial production fell back more sharply than expected in September with year-on-year rates especially betraying the report's generally weakening trends. Pulled down by manufacturing, industrial production fell a monthly 0.4 percent in September and double the expected contraction. Manufacturing volumes fell 0.5 percent, nearly double the expected decrease and reflecting wide declines across readings including a 4.2 percent monthly drop for motor vehicles and a 0.7 percent decline for business equipment.

The report's two smaller components were mixed with utilities rising 1.4 percent in September but mining falling 1.3 percent. Mining had been enjoying two years of exceptional strength in this report but has since faded. Year-on-year, mining volumes are up a moderate 2.6 percent with utilities up 1.2 percent.

The trouble for manufacturing, which is being held down by weakening demand for US exports, is framed convincingly by 0.9 percent year-on-year contraction in this report. Vehicle production is down 5.4 percent on the year and improvement may be slow based at least on yesterday's retail sales report where vehicles sales were a major negative. Business equipment is another negative, down 0.8 percent on the year which won't be giving the hawks at the FOMC much strength in their arguments to limit further rate cuts. Weakness in business equipment, the result of falling business expectations, is a central concern, if not the central concern, for monetary policy makers.